‘Euribor’ is a widely discussed term, but not always fully understood. The truth is that small increases or decreases in this rate can translate into significant differences in the monthly payment of a mortgage. This article explains in a simple and practical way what Euribor is, how it has evolved and how it directly affects homebuyers in Portugal and in other eurozone countries.
What is Euribor
Euribor stands for Euro Interbank Offered Rate and represents the average rate at which a group of European banks lend money to each other. It is calculated daily based on the rates reported by a panel of reference banks in the eurozone, including Caixa Geral de Depósitos.
There is not just one Euribor. There are five, with different terms: one week, one month, three months, six months and twelve months. In Portugal, the most commonly used for mortgages are the 6 month and 12 month Euribor. These terms determine how often the monthly payment will be reviewed.
The calculation is performed on all business days and follows a simple method. Fifteen percent of the highest rates and fifteen percent of the lowest rates are excluded, and the average of the remaining values is calculated. The final figure is rounded to three decimal places.
How it is influenced by the European Central Bank
Although the ECB does not directly set the Euribor, its decisions have an immediate effect on financing conditions between banks. When the ECB lowers its key interest rates, the cost of money decreases and the Euribor tends to follow. When the ECB raises rates to control inflation, the Euribor rises as well.
That is exactly what happened in recent years. After a long period in negative territory, the Euribor increased rapidly between 2022 and 2023, reflecting the ECB’s rate hikes to fight inflation. From 2024 onwards, it began a gradual decline, following price stabilisation and the easing of monetary policy. This trend was felt across the eurozone.
The connection between Euribor and mortgages
The interest rate on a mortgage results from the sum of the Euribor and the spread. The spread is fixed and defined by the bank at the time of contracting. The Euribor varies. This variable component is what makes the monthly payment rise or fall over time.
If you have a variable rate mortgage, the revision occurs according to the chosen maturity. For example, those with a 6 month Euribor have their rate reviewed twice a year. Those with a 12 month Euribor see their rate reviewed only once a year.
In fixed rate mortgages, Euribor fluctuations do not affect the monthly payment during the contracted period.
What happens when Euribor rises
When Euribor rises, the total interest rate increases, resulting in a higher monthly payment. For many families, this rise has a direct impact on the effort rate and can limit credit approval, reduce the financed amount or change the way the monthly budget is managed.
Prolonged increases in Euribor may lead borrowers to renegotiate their loan, change the term, seek a lower spread or consider switching to a fixed rate.
What happens when Euribor drops
When Euribor decreases, the monthly payment is reduced in variable rate contracts. This drop can ease the monthly budget, increase borrowing capacity and make it easier for new buyers to access credit.
A lower Euribor also tends to stimulate the real estate market, especially in countries such as Portugal, Spain and Italy, where most mortgages are indexed to variable rates. In countries like France or Germany, where long fixed rates are more common, the impact is less immediate.
How to follow Euribor rates
To track daily Euribor rates across different maturities, you can consult this link.
Keeping up to date with this information helps to understand trends and anticipate possible changes in mortgage payments.
Overall
Euribor is a central component of mortgage financing. Understanding what it is, how it works and why it fluctuates allows borrowers to make safer decisions, negotiate better with their bank and avoid future surprises.